As part of the Finance Bill 2024, several significant changes to the Tax Deducted at Source (TDS) framework have been introduced, and they took effect on October 1, 2024. These changes aim to simplify compliance, ease the tax burden on individuals and businesses, and enhance transparency in various financial transactions.
If you’re someone who deals with rent payments, commissions, or e-commerce, these updates will directly impact you. Here’s a breakdown of the most important TDS changes you should be aware of.
Key Updates to TDS Rate
- Life Insurance Payouts (Section 194DA)
Under the previous rule, any sum paid under a life insurance policy, excluding those exempt under Section 10(10D), attracted a 5% TDS. Effective October 1, 2024, this has been slashed to 2%. This lower rate applies to payments such as insurance bonuses, which were earlier taxed more heavily.
- Commission or Brokerage Payments (Section 194H)
If you receive income in the form of commission or brokerage, there’s good news. The TDS on such payments has been reduced from 5% to 2%. This change will benefit individuals working in real estate, sales, and various forms of brokerage, offering them more liquidity from their earnings.
- Rent Payments (Section 194IB)
For individuals or Hindu Undivided Families (HUFs) paying rent above ₹50,000 per month, the TDS rate has dropped from 5% to 2%. This is a considerable relief for tenants, making rent payments more manageable without the hassle of excessive tax deductions.
- Large Payments by Individuals/HUFs (Section 194M)
When individuals or HUFs make payments exceeding ₹50 lakh in a year—typically to contractors or professionals—the TDS rate has been reduced from 5% to 2%. This change alleviates some of the burdens that larger one-time payments could previously bring.
- Commission on Lottery Ticket Sales (Section 194G)
The TDS on commission from the sale of lottery tickets is also reduced from 5% to 2%. This benefits agents involved in distributing lottery tickets, who will now see a lighter tax load.
- E-commerce Transactions (Section 194O)
If you are an e-commerce operator, take note: the TDS on payments to e-commerce participants has dropped from 1% to 0.1%. This significant reduction will help online sellers retain more of their earnings, a great relief for small and medium-sized businesses that operate on digital platforms.
- Repurchase of Mutual Fund Units (Section 194F)
This section, which previously mandated a TDS of 20% on repurchase of units by mutual funds or the Unit Trust of India, has been omitted entirely from October 1, 2024. This means no TDS will apply to these transactions anymore, simplifying the tax treatment of mutual fund repurchases.
Key Changes in TDS Rates from October 1, 2024
| Section | Description | Old TDS Rate | New TDS Rate |
|---|---|---|---|
| 194DA | Life insurance policy payouts (non-exempt policies) | 5% | 2% |
| 194H | Commission or brokerage payments | 5% | 2% |
| 194IB | Rent payments (individuals/HUFs paying more than ₹50,000) | 5% | 2% |
| 194M | Large payments by individuals/HUFs exceeding ₹50 lakh | 5% | 2% |
| 194G | Commission on sale of lottery tickets | 5% | 2% |
| 194O | E-commerce transactions (payments by operators) | 1% | 0.1% |
| 194F | Repurchase of units by mutual funds/UTI | 20% | Omitted |
Clarification for Immovable Property Transactions (Section 194IA)
For real estate transactions where the total consideration exceeds ₹50 lakh, TDS at 1% remains applicable. A clarification added from October 1, 2024, confirms that this TDS will apply even if the payment is split across multiple buyers or sellers.
Extended Applicability for Lower TDS Certificates (Section 197)
From October 1, 2024, lower TDS certificates can also be obtained for payments covered under Section 194Q (TDS on purchase of goods) and Section 206C (TCS on sale of goods). This makes it easier for taxpayers to apply for reduced tax deduction at source based on their projected income.
Why These Changes?
The rationale behind these updates is to make tax compliance smoother, reduce the cash flow pressures on small businesses, and simplify financial transactions. The government has also aimed to reduce instances of over-taxation, which previously led to businesses applying for refunds at the end of the financial year.
Other Notable Changes
- No changes have been made to TDS on salary, virtual digital assets, winnings from lotteries, or payments to non-residents.
- Share buyback taxation: Starting October 1, 2024, any sum paid by a company to shareholders for the buyback of shares will now be taxable as a dividend at the hands of the shareholders.
Conclusion
These changes are a welcome relief for many taxpayers, especially those in sectors such as real estate, e-commerce, insurance, and brokerage. By reducing the TDS rates, the government hopes to promote ease of doing business and encourage smoother financial transactions across industries.